TSP board considers rebranding Lifecycle Funds

The L Funds, also known as target-date funds, are made up of a mix of the five core TSP funds. Early in an employee’s career, L Funds contain a larger share of higher-risk stock funds. As employees near retirement, the allocation shifts more toward the super-safe securities G Fund.

But board members are concerned the “fund” label may be confusing to TSP participants.

“The mutual fund industry and the investment industry, generally, have spent decades telling people to diversify,” the board’s executive director Greg Long said during the monthly meeting Monday.

While investors are told not to put all their eggs in one basket, that advice could perplex TSP participants, since the TSP’s L Funds are both a single investment option and also a diversified portfolio in and of themselves.

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For example, about 16 percent of TSP participants currently invest in a both an L Fund and one or more other funds. Only about 6 percent of TSP participants invest solely in an L Fund.

“If we were doing it form ground zero — if these funds did not exist — while calling them funds is accurate … it’s less descriptive of what the fund does,” Long said.

Lifecycle ‘Strategy’ instead of ‘Fund’

A memo prepared for board members by Jim Courtney, the director of the Office of Communications and Education, suggested rebranding the L Funds as “Lifecycle Strategies” and proposed testing out the new name using focus groups this year.

“Renaming our L Funds, and launching an informational campaign to support the name change, also offers us the opportunity to begin a new conversation with participants about prudent, diverse and worry-free asset allocation, and could generate more interest in these TSP target-date funds,” Courtney’s memo stated.

Still, even that simple name change would carry a hefty price tag. The agency would have to update language in 88 different places on its website, as well as on numerous booklets and training materials. Even some of the agency’s informational YouTube videos would have to be edited and reposted. All told, those changes would cost somewhere in the range of $100,000 to $250,000, according to the memo. In order to properly publicize the change and cut back on potential confusion, the board estimates spending another $100,000 on a rebranding campaign.

“While there might be some benefits, there are some costs and risks associated with it,” Long said.

While he said he agrees that a new name would be more appropriate, not every member of his team supports the move.

“Some people on my team are saying, ‘Why are we going to mess with the most successful Lifecycle Fund on the planet?'” Long said.

Board sets sights on L Fund changes

However, he said he believes the long-term benefits outweigh the short-term costs and potential disruptions.

“Over the long-term, it makes sense to help people understand what they’re purchasing by renaming ‘funds’ to ‘strategies,'” he said.

The potential rebranding is the most recent proposed change to the TSP’s Lifecycle Funds the board has considered in recent months.

In December, the board approved a measure that would automatically enroll new federal hires in an age- appropriate L Fund instead of the G Fund, sparked by concerns that too many participants were remaining exclusively in the G Fund — more than 40 percent. However, the proposal still requires action by Congress before it’s acted upon.

Earlier, in October, consulting firm Mercer recommended the board retool the investment mixes that make up the L Funds by boosting the allocation of both the G Fund and the higer-risk-higher-reward stock options in the L Funds.

TSP investigating possible phishing attempt

The TSP board is also investigating a potential phishing attempt, a type of Internet fraud that attempts to steal personal information from users often by tricking them into clicking on malicious links or bogus websites.

The board learned from a few agencies last week of emails circulating appearing to redirect users to illegitimate websites. Executive Director Greg Long said the board is still investigating but, so far, there is no evidence any accounts were compromised.

So far, for the month of February, the C Fund, designed to match the performance of the S&P 500, is up 3.2 percent; the S Fund, designed to match the performance of an index of funds of smaller companies, is up 3.9 percent; and the I Fund, designed to match the performance of international stocks, is up 4.9 percent for the year.

Last month all three of the stock funds and most of the L Funds posted in negative territory. So far in February, all the equity funds are back in positive territory year-to-date with the exception of the C Fund, which is down 0.33 percent.

The participation rate for participants under the Federal Employees Retirement System also rebounded from the end of last year — from 85.9 percent of FERS employees to 86.8 percent by the end of January.

“That’s the good news,” said Renee Wilder, the board’s director of enterprise planning. “We are definitely back to where we should be.”

Much of that bounce-back can be attributed to the fact that participants who had maxed out annual contribution limits set by the Internal Revenue Service are now able to contribute again, she added.

Meanwhile, the amount of money invested in the Roth TSP option — which allows participants to contribute after-tax dollars to the TSP — surpassed $1 billion for the first time.

There are about 312,000 participation with Roth accounts, Wilder said. Of those, about 141,000 are members of the uniformed services.

“We are experiencing very good pickup with our Roth TSP option,” Wilder said.